LOGL Legend Oil and Gas Ltd (CE)

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A

   

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

 

 

Date of Report (Date of earliest event reported)

April 3, 2015

 

Legend Oil and Gas, Ltd.

(Exact Name of Registrant as Specified in Charter)

 

Colorado (State or Other Jurisdiction of Incorporation)

000-49752 (Commission File Number)

84-1570556 (IRS Employer Identification No.)

 

555 Northpoint Center East, Suite 400 Alpharetta, GA (Address of Principal Executive Offices)

30022 Zip Code

(678) 595-6243

(Registrant’s telephone number, including area code)

 

______________________________________________

(Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

o	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item	2.01 Completion of Acquisition or Disposition of Assets.

 

On April 7, 2015, Legend Oil and Gas, Ltd. (the “Company”) filed with the Securities and Exchange Commission a Current Report on Form 8-K disclosing that the Company completed the acquisition of Black Diamond Energy Holdings LLC, Delaware limited liability company (“Black Diamond”). Pursuant to the terms of the Membership Interest Purchase Agreement, the Company became the sole member of Black Diamond.

 

Item 9.01(a) and (b) of the Current Report on Form 8-K dated April 3, 2015, did not include the historical financial statements of Black Diamond or the unaudited pro forma combined financial information of the Company (collectively, the “Financial Information”), and instead contained an undertaking subsequently to file the Financial Information. This amendment is being filed for the purpose of satisfying the Company’s undertaking to file the Financial Information required by Item 9.01(a) and (b) of Form 8-K, and this amendment should be read in conjunction with the initial report on Form 8-K.

 

Item	9.01 Financial Statements and Exhibits.

 

(a) Financial Statements of Business Acquired

 

The audited consolidated balance sheets of Black Diamond and its subsidiaries as of December 31, 2014 and 2013 and the related consolidated statements of operations, members’ equity and cash flows for each of the two years ended December 31, 2014 and 2013, the Notes to the Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm are filed as Exhibit 99.1 to this Current Report on Form 8-K/A.

 

(b) Pro Forma Financial Information

 

The unaudited pro forma condensed combined statement of operations of the Company and its subsidiary for the year ended December 31, 2014, as well as the unaudited condensed combined balance sheet at March 31, 2015 and the unaudited condensed statement of operations for the three months ended March 31, 2015, giving effect to the acquisition of Black Diamond, are filed as Exhibit 99.2 to this Current Report on Form 8-K/A.

 

(d) Exhibits

 

99.1		Audited consolidated balance sheets of Black Diamond and its subsidiaries as of December 31, 2014 and 2013 and the related consolidated statements of operations, members’ equity and cash flows for each of the two years ended December 31, 2014 and 2013, the Notes to the Consolidated Financial Statements and the Report of Independent Auditors.
99.2		Unaudited pro forma condensed combined statement of operations of the Company and its subsidiary for the year ended December 31, 2014, as well as the unaudited condensed combined balance sheet at March 31, 2015 and the unaudited condensed statement of operations for the three months ended March 31, 2015, giving effect to the acquisition of Black Diamond.

 

 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

	LEGEND OIL AND GAS, LTD.
June 19, 2015	By:	/s/ Warren S. Binderman
		Warren S. Binderman
		President and Chief Financial Officer

  

Legend Oil and Gas, Ltd. 8-K/A

Exhibit 99.1

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and Members of

Black Diamond Energy Holdings, LLC (dba Maxxon Energy)
Salt Lake City, Utah

 

We have audited the accompanying consolidated balance sheets of Black Diamond Energy Holdings, LLC (dba Maxxon Energy) as of December 31, 2014 and 2013, and the related consolidated statements of operations, changes in member’s equity, and cash flows for each of the years then ended. Black Diamond Energy Holdings, LLC’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Black Diamond Energy Holdings, LLC as of December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

 

/s/ GBH CPAs, PC

GBH CPAs, PC
www.gbhcpas.com
Houston, Texas
June 4, 2015

 

Black Diamond Energy Holdings, LLC

(dba Maxxon Energy)

Consolidated Balance Sheets

As of December 31, 2014 and 2013

 

	2014				2013
ASSETS
Current assets:
Cash and cash equivalents	$	769,664			$	292,031
Accounts receivable – trade		763,490				486,380
Parts inventory		194,989				53,219
Prepaid expenses		180,328				184,746
Other current assets		138,174				58,405
Total current assets		2,046,645				1,074,781
Property, plant, and equipment		4,385,251				4,392,944
Accumulated depreciation		(1,749,545	)			(1,099,236	)
Property, plant, and equipment, net		2,635,706				3,293,708
Security deposit		120,000				—
Other assets		53,600				35,616
Total assets	$	4,855,951			$	4,404,105
LIABILITIES AND MEMBERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	532,719			$	369,668
Accounts payable – related parties		8,455				9,019
Other current liabilities		6,784				4,621
Total current liabilities		547,958				383,308
Total liabilities		547,958				383,308
Commitments and contingencies
Members’ equity		4,307,993				4,020,797
Total liabilities and members’ equity	$	4,855,951			$	4,404,105

 

 

See accompanying notes to the consolidated financial statements.

Black Diamond Energy Holdings, LLC

(dba Maxxon Energy)

Consolidated Statements of Operations

For the Years Ended December 31, 2014 and 2013

 

	2014				2013
Revenues:
Operating revenues	$	8,591,513			$	9,086,611
Repair shop revenues		792,359				476,920
Total revenues		9,383,872				9,563,531
Cost of goods sold – repair shop		638,540				336,732
Gross profit		8,745,332				9,226,799
Operating expenses:
Purchased transportation expense		2,626,845				4,562,635
Salaries, wages, and employee benefits		2,547,667				1,914,694
Fuel and fuel taxes		805,901				682,205
Insurance		376,750				369,595
Repairs and maintenance		340,772				202,312
General and administrative expenses		796,497				769,429
Depreciation expense		805,899				797,277
Gain on disposal of assets		(17,140	)			(16,272	)
Total operating expenses		8,283,191				9,281,875
Net income (loss) from operations		462,141				(55,076	)
Other income (expense):
Interest expense		(4,259	)			(8,144	)
Factoring income, net		16,357				26,038
Total other income		12,098				17,894
Net income (loss)	$	474,239			$	(37,182	)

 

 

 

 

See accompanying notes to the consolidated financial statements. 

 

 

Black Diamond Energy Holdings, LLC

(dba Maxxon Energy)

Consolidated Statement of Changes in Members’ Equity

For the Years Ended December 31, 2014 and 2013

 

	Total Members’ Equity
Balance at December 31, 2012	$	4,688,335
Member distributions		(630,356	)
Net loss		(37,182	)
Balance at December 31, 2013		4,020,797
Member distributions		(187,043	)
Net income		474,239
Balance at December 31, 2014	$	4,307,993

  

 

See accompanying notes to the consolidated financial statements.

 

Black Diamond Energy Holdings, LLC

(dba Maxxon Energy)

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2014 and 2013

 

	2014				2013
Cash flows from operating activities:
Net income (loss)	$	474,239			$	(37,182	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation expense		805,899				797,277
Gain on disposal of revenue equipment		(17,140	)			(16,272	)
Changes in operating assets and liabilities:
Accounts receivable - trade		(277,110	)			1,113,784
Parts inventory		(141,770	)			(48,094	)
Prepaid expenses		(289,171	)			(303,564	)
Other current assets		(79,769	)			(58,405	)
Accounts payable and accrued expenses		735,074				(214,721	)
Net cash provided by operating activities		1,210,252				1,232,823
Cash flows from investing activities:
Payments for the purchases of property, plant, and equipment		(423,991	)			(109,007	)
Proceeds from disposal of revenue equipment		293,234				248,496
Payment for security deposit		(120,000	)			—
Payments for other assets		(17,984	)			(4,328	)
Net cash provided (used in) investing activities		(268,741	)			135,161
Cash flows from financing activities:
Payment on advances from related parties		(564	)			(453,273	)
Principal payments on debt		—				(71,170	)
Payments on financed insurance premiums		(276,271	)			(287,187	)
Distributions to members		(187,043	)			(630,356	)
Net cash used in financing activities		(463,878	)			(1,441,986	)
Net increase (decrease) in cash and equivalents		477,633				(74,002	)
Cash and cash equivalents, beginning of year		292,031				366,033
Cash and cash equivalents, end of year	$	769,664			$	292,031
Supplemental cash flow information:
Cash paid for interest	$	4,259			$	8,144
Cash paid for income taxes	$	—			$	—
Non-cash investing and financing activities:
Financed insurance premiums	$	293,589			$	280,582

 

 

 

 

See accompanying notes to the consolidated financial statements.

  

 

Black Diamond Energy Holdings, LLC

(dba Maxxon Energy)

Notes to Consolidated Financial Statements

 

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

THE COMPANY

 

Black Diamond Energy Holdings, LLC (dba Maxxon Energy) (the “Company”) was formed on April 12, 2012 as a Delaware limited liability company. The wholly owned operating subsidiaries operate in Killdeer, North Dakota, as a crude oil hauling company. The Company has eight wholly owned subsidiaries that include Black Diamond Energy LLC (the crude oil hauling operating company, also known as Maxxon Energy) and Treeline Diesel Center in Killdeer, ND, a diesel repair shop that services the Company’s equipment as well as other customers, BDE Tractor Leasing I LLC, BDE Tractor Leasing II LLC, BDE Trailer Leasing I LLC, BDE Trailer Leasing II LLC, BDE Trailer Leasing III LLC, and BDE Trailer Leasing IV LLC hold the tractors and trailers for the Company’s crude oil hauling operations.

 

BASIS OF PRESENTATION

 

The consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America.

 

PRINCIPLES OF CONSOLIDATION

 

The consolidated financial statements include the accounts of Black Diamond Energy Holdings, LLC and its subsidiaries. Intercompany transactions and balances have been eliminated.

 

ESTIMATES AND ASSUMPTIONS

 

Preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes may differ from management’s estimates and assumptions. The Company’s significant estimate is depreciable lives of fixed assets.

 

CASH AND CASH EQUIVALENTS

 

Periodically, the Company may carry cash balances at financial institutions in excess of the federally insured limit of $250,000. At December 31, 2014 and 2013, the Company’s cash in excess of the federally insured limit was $495,099 and $32,684, respectively. Historically, the Company has not incurred any losses related to cash balances.

 

ACCOUNTS RECEIVABLE

 

The Company’s accounts receivable represent amounts due from customers for oil hauling services and equipment repair services. Accounts receivable are carried at original invoice amount. Accounts receivable are written off when deemed uncollectible. Our trade accounts receivable includes amounts due from customers that have been reduced by an allowance for uncollectible accounts and revenue adjustments. The allowance for uncollectible accounts and revenue adjustments is based on historical experience, as well as any known trends or uncertainties related to customer billing and account collectability.

 

INVENTORIES

 

Inventories consist primarily of diesel truck parts. Inventories are stated at the lower of cost or market, using the average cost method. Cost includes the purchase price of the inventory from our vendors. We regularly review inventory quantities on hand. If our review indicates a reduction in quantity on hand we reduce our inventory to match the quantity on hand.

 

PROPERTY AND EQUIPMENT

 

Property and equipment is stated at cost and depreciated using the straight-line method over 5 years. Repairs and maintenance are charged to expense as incurred. Repairs to trucks and trailers that include new equipment that will either increase the value of the equipment or extend the useful life of the equipment are capitalized and depreciated using the straight-line method over 5 years. The Company has estimated salvage values on all equipment at 10% of the equipment’s original cost. The cost and accumulated depreciation of property and equipment retired or otherwise disposed of are eliminated from the respective accounts and any resulting gain or loss is included in operating expenses.

 

Long-lived assets, such as property and equipment to be held and used in operations, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets are grouped at the lowest level at which identifiable cash flows are largely independent when assessing impairment. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Recoverability of long-lived assets is dependent upon, among other things, the Company's ability to continue to achieve profitability in order to meet its obligations when they become due. In the opinion of management, based upon current information, the carrying amount of long-lived assets will be recovered by future cash flows generated through the use of such assets over their respective estimated useful lives.

 

INCOME TAXES

 

The Company elected to be taxed as a partnership under the Internal Revenue Code. The Company pays no U.S. taxes on its earnings. The Company’s net earnings are passed through to the Company members and, as such, reports no income tax expense or liability.

 

REVENUE RECOGNITION

 

We recognize revenue based on the relative transit time of the freight transported and as other services are provided. Accordingly, a portion of the total revenue that will be billed to the customer once a load is delivered is recognized in each reporting period based on the percentage of the freight pickup and delivery service that has been completed at the end of the reporting period.

 

We record revenues on the gross basis at amounts charged to our customers because we are the primary obligor, we are a principal in the transaction, we invoice our customers and retain all credit risks, and we maintain discretion over pricing. Additionally, we are responsible for the selection of third-party transportation providers. Independent contractor providers of revenue equipment are classified as purchased transportation expense on the consolidated statements of operations.

 

NEW ACCOUNTING PRONOUNCEMENTS

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The main objective of this update is to require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. The guidance in this update supersedes virtually all present U.S. GAAP guidance on revenue recognition. The amendments to the standard require the use of more estimates and judgments than the present standards and require additional disclosures. The amendments are effective as of January 1, 2017 and we are currently evaluating this standard and our existing revenue recognition policies to determine which of our customer arrangements in the scope of the guidance will be affected by the new requirements and what impact they would have on our consolidated financial statements upon adoption of this standard.

 

There were other various accounting standards and interpretations issued recently, none of which are expected to a have a material impact on our consolidated financial position, operations or cash flows.

 

SUBSEQUENT EVENTS

 

The Company has evaluated all transactions from December 31, 2014 through the financial statement issuance date for subsequent event disclosure consideration.

 

NOTE 2 – PREPAID INSURANCE

 

The Company maintains insurance policies as required for the operations of its business. Premiums are due at the beginning of the policy period. The Company uses a financing company to finance the insurance costs. Since the policies are paid for in advance, the Company carries a prepaid insurance balance on its books and amortizes the costs on a straight line basis over the policy period. As of December 31, 2014 and 2013, the balance of total prepaid expenses was $180,328 and $184,746, respectively, which included prepaid insurance of $142,816 and $138,335, as of December 31, 2014 and 2013, respectively.

   

NOTE 3 – PROPERTY AND EQUIPMENT

 

		December 31, 2014				December 31, 2013
Trucks, trailers, and vehicles		$	4,021,834			$	4,120,082
Furniture and equipment			293,521				202,969
Office trailer			69,896				69,896
Property and equipment, at cost			4,385,251				4,392,944
Accumulated depreciation			(1,749,545	)			(1,099,236	)
Property and equipment, net		$	2,635,706			$	3,293,708

 

Property and equipment are stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are 5 years.

 

During the years ended December 31, 2014 and 2013, depreciation expense was $805,899 and $797,277, respectively.

 

NOTE 4 – SECURITY DEPOSIT AND OTHER ASSETS

 

The Company had other assets consisting of deposits with vendors and landlord. On September 1, 2014, the Company entered into a long-term lease for their diesel repair shop, which expires on September 20, 2017, and paid a security deposit of $120,000. Prior to September 1, 2014, the Company leased space on an annual basis without a security deposit requirement. As of December 31, 2014 and 2013, deposits with landlords were $120,000 and $0, respectively. As of December 31, 2014 and 2013, deposits with vendors were $30,000 and $30,000, respectively.

 

NOTE 5 – MEMBERS’ EQUITY

 

As of December 31, 2014 and 2013, the Company had authorized 1,000,000 member units of which all were issued and outstanding.

 

Member balances were as follows as of December 31, 2013:

 

Member		Units				% of Total
Sher Trucking LLC			583,333				58	%
Adam O’Farrell			50,000				5	%
Albert Valentin			200,000				20	%
Steven Wallace			166,667				17	%
Total			1,000,000				100	%

 

On April 25, 2014, Adam O’Farrell redeemed his 50,000 member units. Those units were allocated to Sher Trucking LLC. Member balances as of December 31, 2014 were as follows:

 

Member		Units				% of Total
Sher Trucking LLC			633,333				63	%
Albert Valentin			200,000				20	%
Steven Wallace			166,667				17	%
Total			1,000,000				100	%

 

During the years ended December 31, 2014 and 2013, the Company paid out distributions to members of $187,043 and $630,356, respectively.

 

NOTE 6 – COMMITMENTS AND CONTINGENCIES

 

Operating Lease Commitments

 

The Company leases office space, a diesel repair shop, and employee housing under non-cancelable lease agreements. The leases provide that the Company pays taxes, insurance, utilities, and maintenance expenses related to the leased assets. Future minimum lease payments for these non-cancelable operating leases as of December 31, 2014 are as follows:

 

2015			$	170,000
2016				120,000
2017				90,000
Thereafter				—
Net minimum lease payments			$	380,000

 

Rent expense under operating leases was $203,757 and $143,850 for the years ended December 31, 2014 and 2013, respectively.

 

In the ordinary course of business, the Company can be involved in various legal proceedings and claims that arise. Most claims of which are covered in whole or in part by insurance. To date, we are not aware of any legal proceedings or claims that will have a material adverse effect upon our financial position, results of operations or cash flows.

 

NOTE 7 – RELATED PARTY TRANSACTIONS

 

For the years ended December 31, 2014 and 2013, Sher Trucking LLC, a member of the Company, was paid $50,000 for management and accounting services. As of December 31, 2014 and 2013, $4,166 was owed for those services and was included in accounts payable – related parties.

 

Factoring Fees

 

In addition to the drivers employed by the Company, the Company also contracts with independent third party companies (“Lessors”) to haul oil. The Company has a factoring agreement with the Lessors which provides that the Company will pay the Lessors on the 25^th and 10^th of each month following when the oil was hauled. The Lessors receive this expedited payment rather than waiting until the Company has been paid by the customers. In return for the expedited payment, the Lessors agree to pay the Company a fee of 2% of gross pay. The net effect of the fee is to reduce the Lessors commission rate by 2%. Of the 2% factoring fee collected, the Company retains 0.5% and pays the other 1.5% to Sher Trucking, a Member of the Company, in exchange for Sher Trucking facilitating the cash necessary to pay the Lessors before the Company is paid by customers. In 2013 and 2014, total factoring fees charged to Lessors were $102,646 and $65,426 respectively. In 2013 and 2014, the total amount of factoring fees paid to Sher Trucking was $76,608 and $49,069 respectively. As of December 31, 2014 and 2013, accrued factoring fees owed to Sher Trucking were $4,289 and $4,853, respectively, and was included in accounts payable – related parties.

 

 

NOTE 8 – CONCENTRATION OF CUSTOMERS

 

The Company routinely assesses the financial strength of its customers. As a result, the Company believes that its accounts receivable credit risk exposure is limited and has not experienced significant write-downs in its accounts receivable balances. As of December 31, 2014, Stat Oil, Bridger, and Northern Tier Energy, combined, represented 90% of the Company's accounts receivable balance. As of December 31, 2013, Stat Oil, Bridger, Prairie, and Northern Tier Energy, combined, represented 83% of the Company's accounts receivable balance. During fiscal years 2014 and 2013, these customers represented 92% and 91%, respectively, of revenues. The Company’s operations are located in Killdeer, ND and are concentrated 100% in hauling oil and servicing equipment in the oil industry located in the Bakken.

 

NOTE 9 – SUBSEQUENT EVENTS

 

On April 3, 2015, all of the Company’s members entered into a Membership Interest Purchase Agreement (the "Agreement") with Legend Oil and Gas Ltd. ("Legend") to sell all of their membership units of the Company. Pursuant to the Agreement, Legend:

 

 

a)		Paid $1,500,000 cash to Sher Trucking LLC, a member of the Company;
b)		Issued a secured promissory note to Sher Trucking LLC in the amount of $2,854,000 (the “Note”);
c)		Issued 90,817,356 shares of Legend common stock to Albert Valentin, a member of the Company;
d)		Agreed to issue 57,682,644 shares of Legend common stock to Steven Wallace, a member of the Company, or at Wallace’s election not later than April 24, 2015, warrants to purchase 57,682,644 shares of Legend common stock at $0.001 per share. Such shares or warrants will be adjusted proportionately based on the Agreement’s required working capital adjustment.

 

In addition, Legend paid an additional $125,000 to Sher Trucking LLC as an advance against an anticipated purchase price adjustment. The purchase price is subject to an adjustment based on the amount of net working capital of the Company at closing. In the event the net working capital is either greater than or less than the estimated net working capital at closing, Sher and Wallace will share the positive or negative adjustment. Any adjustment for Sher will be in cash. Any adjustment for Wallace will be in shares of Legend common stock or warrants.

 

The principal amount of the Note bears interest at five percent (5%) per annum and is due and payable in full on April 3, 2016. The Note is secured by certain rolling stock trucks and trailers owned by subsidiaries of the Company.

 

 

 

Legend Oil and Gas, Ltd. 8-K/A

Exhibit 99.2

 

UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION

 

On April 3, 2015, Legend Oil and Gas Ltd. (the “Company”) entered into an Membership Interest Purchase Agreement (the “Agreement”) with Sher Trucking, LLC (“Sher”), Albert Valentin (“Valentin”) and Steven Wallace (“Wallace”), all of the members of Black Diamond Energy Holdings LLC, Delaware limited liability company (“Black Diamond”) to purchase all outstanding membership interests of Black Diamond, and on the same date completed such purchase (the “Purchase”). Pursuant to the Agreement, the Company:

 

(a)   Paid $1,500,000 cash to Sher;

 

(b)   Issued a secured promissory note to Sher in the amount of $2,854,000 (the “Note”);

 

(c)   Issued 90,817,356 shares of Company common stock to Valentin;

 

(d) Agreed to issue 57,682,644 shares of Company common stock to Wallace or, at Wallace’s election not later than April 24, 2015, warrants to purchase 57,682,644 shares of Company common stock at $0.001 per share, subject to adjustment based on the working capital adjustment which has not yet been finalized by Sher and the Company..

 

In addition, the Company agreed to pay an additional $125,000 to Sher not later than April 10, 2015, as an advance against an anticipated purchase price adjustment.

 

The purchase price is subject to an adjustment based on the amount of net working capital of Black Diamond at closing. In the event the net working capital is either greater than or less than the estimated net working capital at closing, Sher and Wallace will share the positive or negative adjustment. Any adjustment for Sher will be in cash. Any adjustment for Wallace will be in shares of Company common stock or warrants.

 

The principal amount of the Note bears interest at five percent (5%) per annum and is due and payable in full on April 3, 2016. The Note is secured by certain rolling stock trucks and trailers owned by subsidiaries of Black Diamond.

 

The following unaudited pro forma combined financial statements reflect the acquisition of 100% of the membership interest of Black Diamond using the acquisition method of accounting. The acquisition has been accounted for in conformity with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 805, Business Combinations (“ASC 805”). The pro forma adjustments are based upon available information and assumptions that we believe are reasonable. The pro forma adjustments are preliminary and have been prepared to illustrate the estimated effect of the acquisition. Differences between these preliminary estimates and the final acquisition accounting will occur and these differences could have a material impact on the accompanying unaudited pro forma combined financial statements and the combined companies’ future results of operations and financial position. The unaudited pro forma combined financial statements do not purport to be indicative of the operating results or financial position that would have been achieved had the acquisition taken place on the date indicated or the results that may be obtained in the future.

 

 

 

The unaudited pro forma combined balance sheet as of March 31, 2015 is presented as if our acquisition of Black Diamond had occurred on March 31, 2015.

 

The unaudited pro forma combined consolidated statements of operations for the year ended December 31, 2014 and for the three months ended March 31, 2015 illustrate the effect of the Black Diamond acquisition as if it had occurred on December 31, 2013 and includes the historical Legend Oil and Gas, Ltd. and Black Diamond unaudited statements of operations for those periods.

 

The historical consolidated financial statements have been adjusted to give effect to pro forma events that are (i) directly attributable to the acquisition (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined results of the companies. These unaudited pro forma condensed combined financial statements are prepared by management for informational purposes only in accordance with Article 8 of Securities and Exchange Commission Regulation S-X and are not necessarily indicative of future results or of actual results that would have been achieved had the acquisition been consummated as of the dates presented, and should not be taken as representative of future consolidated operating results of Legend Oil and Gas, Ltd.. The unaudited pro forma combined financial statements do not reflect any operating efficiencies and/or cost savings that we may achieve, or any additional expenses or costs of integration that we may incur, with respect to the combined companies as such adjustments are not factually supportable at this point in time. The assumptions used to prepare the pro forma financial statements are contained in the notes to the unaudited pro forma combined financial statements, and such assumptions should be reviewed in their entirety.

 

The unaudited pro forma combined financial statements have been developed from, and should be read in conjunction with the historical audited consolidated financial statements for the year ended December 31, 2014 and notes thereto of Legend Oil and Gas, Ltd. contained in its Annual Report on Form 10-K which was filed on April 6, 2015.

   

 

 

Legend Oil and Gas, Ltd. and Subsidiary

Condensed Combined Statement of Operations

For the Year Ended December 31, 2014

(unaudited)

 

		Historical Legend Oil and Gas, Ltd.				Historical Black Diamond Energy				Combined
Revenues:
Operating revenues		$	—			$	8,591,513			$	8,591,513
Oil and gas revenues			691,593				—				691,593
Repair shop revenues			—				792,359				792,359
Total revenues			691,593				9,383,872				10,075,465
Cost of goods sold – repair shop			—				638,540				638,540
Gross profit			691,593				8,745,332				9,436,925
Operating expenses:
Purchased transportation expense			—				2,626,845				2,626,845
Salaries, wages, and employee benefits			—				2,547,667				2,547,667
Fuel and fuel taxes			—				805,901				805,901
Insurance			—				376,750				376,750
Repairs and maintenance			—				340,772				340,772
Production expenses			443,413				—				443,413
General and administrative expenses			3,635,247				796,497				4,431,744
Depletion, depreciation and amortization expense			80,910				805,899				886,809
Accretion of asset retirement obligation			15,803				—				15,803
Gain on disposal of assets			—				(17,140	)			(17,140	)
Total operating expenses			4,175,373				8,283,191				12,458,564
Net income (loss) from operations			(3,483,780	)			462,141				(3,021,639	)
Other income (expense):
Interest expense			(4,720,857	)			(4,259	)			(4,725,116	)
Loss on debt extinguishment			(5,013,957	)			—				(5,013,957	)
Change in fair value of embedded derivative liabilities			7,968,322				—				7,968,322
Gain from discontinued operations			2,894,643				—				2,894,643
Factoring income, net			—				16,357				16,357
Total other income			1,128,151				12,098				1,140,249
Net (loss) income		$	(2,355,629	)		$	474,239			$	(1,881,390	)

 

 

 

Legend Oil and Gas, Ltd. and Subsidiary
Proforma Combined Balance Sheet
As of March 31, 2015
(unaudited)
			Historical Legend Oil and Gas				Historical Black Diamond Energy				Adjustments					Combined
ASSETS
Current Assets
Cash and cash equivalents		$	142,607			$	542,222			$	—		(1)		$	684,829
Restricted cash			85,000				—				—					85,000
Accounts receivable			53,125				948,496				—					1,001,621
Prepaid interest			389,999				—									389,999
Other current assets			—				421,786									421,786
Total current assets			670,731				1,912,504				—					2,583,235
Other assets			—				167,890				—					167,890
Property, plant and equipment - net			436,768				3,961,273				(10,826	)	(2)			4,387,215
Oil and gas properties – net (full cost method)			996,722				—				—					996,722
Total assets		$	2,104,221			$	6,041,667			$	(10,826	)			$	8,135,062
LIABILITIES AND STOCKHOLDERS’ AND MEMBERS (DEFICIT) EQUITY
Current Liabilities
Accounts payable and accrued liabilities		$	295,047			$	800,691				—					1,095,738
Accounts payable-related party			407,000				—									407,000
Accrued interest			5,983				—									5,983
Current portion of long term debt			6,062,475				—				4,354,000		(3)			10,416,475
Total current liabilities			6,770,505				800,691				4,354,000					11,925,196
Embedded derivative liabilities			7,680,000				—									7,680,000
Long term debt, net of debt discount of $53,924 and $0, respectively			43,855				—									43,855
Asset retirement obligations			108,585				—									108,585
Total liabilities			14,602,945				800,691				4,354,000					19,757,636
											—
Stockholders’ and members (deficit) equity
Series A Convertible Preferred Stock - 600 shares authorized; $0.001 par value; 600 and 0 shares issued and outstanding, respectively			1				—				—					1
Preferred stock – 99,999,400 shares authorized; $0.001 par value; 0 shares issued and outstanding			—				—				—					—
Common stock – 1,000,000,000 shares authorized; $0.001 par value;187,583,273 and 109,343,534 shares issued and outstanding, respectively			187,583				—				148,500		(4)			336,083
Additional paid-in capital			27,227,181				—				727,650		(4)			27,954,831
Members equity			—				5,240,976				(5,240,976	)	(5)			—
Accumulated deficit			(39,913,489	)			—									(39,913,489	)
Total stockholders’ and members (deficit) equity			(12,498,724	)			5,240,976				(4,364,826	)				(11,622,574	)
Total liabilities and stockholders/members (deficit) equity		$	2,104,221			$	6,041,667			$	(10,826	)			$	8,135,062

  

(1)	At closing of the transaction, the Company (Buyer) entered into a debenture for $1.5 million paid in to the Company and contemporaneously paid out to Sher Trucking, LLC, the Seller as the down payment for the purchase. The pro forma cash adjustment is therefore -0-.
(2)	Reduction from book value to fair value of property and equipment purchased.
(3)	Sellers note payable to Sher Trucking, LLC ($2,854,000) and additional debenture from Hillair Capital Investments ($1,500,000) to consummate acquisition.
(4)	Stock issued to Valentin and Wallace for acquisition of their respective membership interests.
(5)	Elimination of membership interest due to acquisition by Company.

   

 

Legend Oil and Gas, Ltd. and Subsidiary

Condensed Combined Statement of Operations

For the three months ended March 31, 2015

(unaudited)

 

		Historical Legend Oil and Gas, Ltd.				Historical Black Diamond Energy				Combined
Revenues:
Operating revenues		$	—			$	2,537,662			$	2,537,662
Oil and gas revenues			170,015				—				170,015
Repair shop revenues			—				168,860				168,860
Total revenues			170,015				2,706,522				2,876,537
Cost of goods sold – repair shop			—				108,068				108,068
Gross profit			170,015				2,598,454				2,768,469
Operating expenses:
Purchased transportation expense			—				777,093				777,093
Salaries, wages, and employee benefits			—				645,784				645,784
Fuel and fuel taxes			—				202,246				202,246
Insurance			—				109,703				109,703
Repairs and maintenance			—				195,604				195,604
Production expenses			205,167				—				205,167
General and administrative expenses			657,255				—				657,255
Depletion, depreciation and amortization expense			56,284				201,275				257,559
Accretion of asset retirement obligation			2,385				—				2,385
Impairment of oil and gas properties			406,558				—				406,558
Loss on sale of oil and gas  properties			892,131				—				892,131
Total operating expenses			2,219,780				2,131,705				4,351,485
Net income (loss) from operations			(2,049,765	)			466,749				(1,583,016	)
Other income (expense):
Interest expense			(309,978	)			(152	)			(310,130	)
Loss on debt extinguishment			—				—				—
Change in fair value of embedded derivative liabilities			(6,551,333	)			—				(6,551,333	)
Gain from discontinued operations			—				—				—
Factoring income, net			—				8,247				8,247
Total other income			(6,861,311	)			8,095				(6,853,216	)
Net (loss) income		$	(8,911,076	)		$	474,844			$	(8,436,232	)

 

 

  

Black Diamond Energy Holdings, LLC

Notes to Unaudited Pro Forma Combined Financial Statements

 

1.		Background and Basis of Pro Forma Presentation
		On April 3, 2015, Legend Oil and Gas, Ltd. (“Legend” or the “Company”) acquired 100% of the membership interests in Black Diamond Energy Holdings, LLC and subsidiaries, (“Black Diamond”), which principally provides oil hauling services in North Dakota (the Bakken).
		The unaudited pro forma combined financial information was prepared based on the historical financial statements of both Legend and Black Diamond.
		Our acquisition has been accounted for in conformity with ASC 805 and uses the fair value concepts defined in Accounting Standards Codification 820, Fair Value Measurements and Disclosures (“ASC 820-10”). ASC 805 requires, among other things, that most assets acquired and liabilities assumed in an acquisition be recognized at their fair values as of the acquisition date and requires that fair value be measured based on the principles in ASC 820-10. ASC 820-10 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820-10 also requires that a fair value measurement reflect the assumptions market participants would use in pricing an asset or liability based on the best information available.
2.		Purchase Price Allocation
		The acquisition was accounted for as a business combination as defined by FASB Topic 805 – Business Combinations. The allocation of the purchase price to the assets acquired and liabilities assumed was based on our internal assessment of the valuation of assets. As of the date of this filing, a purchase price allocation based upon a valuation has not been finalized, and is subject to change.

 

  

Cash paid at closing		$	1,500,000
Company stock paid to members			876,150
Note to Seller			2,854,000
Total consideration		$	5,230,150
Purchased:
Net tangible assets		$	1,279,703
Property and equipment			3,950,447
Total acquired in acquisition		$	5,230,150